You are here

Trending

Picking the peak of Hong Kong property market a futile exercise

As home prices roar above the highs of 1997, homeowners wonder whether to take a profit

Peggy Sito

BIO

Peggy Sito has been the Post’s property editor since 2003. She is responsible for Property Post, which appears each Wednesday, and leads the property team for Business Post. Together with two colleagues, she won the Best Business Writing (English) award by The Newspaper Society of Hong Kong in 2009.

It's the age-old question that arises whenever property prices appear to have peaked: "Should I sell my home now, take the profit, and buy back later?"

Of course, it is not always easy to identify the peak, and the strategy could backfire badly if prices continue to rise after you make the jump.

But since May, when prices first burst through the high of 1997 - with gains of 18 per cent in the year to October 7 - there has been growing talk that the time might be right to cash in gains, rent and wait for the next down cycle before re-entering the market at a capital gain on the trade.

However, the advice from the experts is: "Don't do it." For every seller that gets the timing right, many more are likely to get it wrong.

I know a couple who did not listen to the advice and jumped. In April this year, they sold the North Point Hill unit they had lived in for 18 years because they believed prices would fall after the new chief executive, Leung Chun-ying, took office in July. They pocketed HK$18 million on the sale - three times what they paid 18 years earlier.

But now they worry about when to buy back into the market. Prices have continued to rise and, having spent some of their gains on jewellery and a new car, renting a flat and having lost some on the stock market, their windfall is meanwhile shrinking. That makes them anxious.

Speaking personally, I must admit that the hassle and the transaction costs incurred in trading homes have tended to keep me where I am. But if I had taken profit on a trade, what factors would I take into account before jumping back in?

Let's recall why the couple in my example made their move. They did so because they foresaw policy risks for the property market under Leung's administration; and indeed, since the end of August, the government has rolled out myriad measures aimed at curbing price growth in the residential market.

On September 14, the Hong Kong Monetary Authority moved to cool the market by making second mortgages harder to get after the United States announced a new round of monetary easing.

But home prices have not dropped as our traders were expecting. The latest data shows that in the week to October 7, prices edged up by 0.88 per cent, leaving the year-to-date gain at 18 per cent.

However, Macquarie Equities Research in its latest report released last week predicts that it is still hopeful of further tightening measures and expects the timing to be around December, before the policy address on January 16 next year.

As new supply will come in this quarter, it expects home prices to see downside risk of 5-10 per cent over the next nine months.

Our couple is now caught in a dilemma of their own making. The market is facing higher policy risks, but what impact might the US monetary stimulus have on the local housing market?

History shows, according to an analysis by property consultancy Colliers International, that Hong Kong house prices rose 37 per cent during the easing over the period from December 2008 to March 2010, and saw growth of 15 per cent during the second round from November 2010 to June last year.

This time, Colliers expects growth of about 5 per cent over 12 months.

In the meantime, the government is finalising details for a significant increase in housing supply in the city, including the release of enough land to allow for 65,000 new residential units over the next three to four years.

The new supply might come riding to the rescue of our couple. But can they be sure it will?

The moral of the story is that there is no crystal ball to predict where prices may be headed. But if, like the couple in our example, you sold in the hope of buying back later at a net gain on the transaction, be sure to keep your nest egg safe, you may be needing it all, and then some …

What would be the catalyst for a substantial Hong Kong style correction in the next 2-3 years? (by Hong Kong style I mean -30% or more)... rates aren't going anywhere till 2015, Loan-to-Values are already only 55% on average..... and it will take a couple years at least for a genuine increase in supply to come onstream. My guess (and it's a guess) is that the big risk is 3-4 years down the line, when you could see a rapid rise/normalization in interest rates (which would SLAM household mortgage payments given Hong Kong's steadily lengthening mortgage tenors... now 25.5 years on average, up from <20 years in 2007 = much more susceptible to rates), would also be coming at the same time as a dramatic increase in supply....

SpeakFreely Oct 16th 20124:46pm

Peggy, my advise to your friend is to hold off as interest rate is rock bottom. It can only goes up and Hk fundamental is not strong for price going up. Upside will be limited. Also, if they are retiring another option is to move to NT much cheaper. For $18m, I assume they have around 2,000 sq ft. They can spend around 7m to buy to floor plus a roof or a garden in NT say tai po with sea and mountain view. Much cleaner air and better traffic. And very friendly people as I moved in from city too. The rest I suggest they invest outside hK. The other place still cheap and nice is Gold Coast Tuen Mun. Nice expat area too.The question is if people willing to change? Then they have more options. If that $18m is majority of their assets, I would advise they move away from city to cash in. If that 18m is nothing to them, then is different story. Actually many old people living in wan chai with polluted air and stuck with high price properties is one of the causes of the high price as they are not moving out. If these retired people move away from the city the price will be lower. I invested in USA just less than one year my rerun is over 40% as house there in many cities are only 2 time earning. Say if people make 100k house price is only 200k. Rental rerun I got is around 15% net.

lucifer Oct 16th 20126:31am

As long as the Mainland government has restrictions on the property market there, and as long as the US Fed keep interests rates low….it's going to keep rising.